1. Not long ago, purchase function was seen to be a desk job, monotonous paper work, dull and
passive and more of an administrative function. The purchase managements were the fall guys
whose only aim was to keep feeding shop floor and avoiding stock out situation.
Today the situation has changed totally. Procurement function is considered to be a strategic
initiative and seen to be adding value to entire business process. Profile of the procurement
managers has changed and expectations from these managers are different.
Modern day procurement managers manage procurement and sourcing function both at strategic
and operational levels. They are proactively engaged in building supplier networks, estimating,
controlling and reducing costs besides performing other functions and ensuring service levels.
Their job functions are increasing becoming cross functional together with supply chain and
Procurement process and paper work is today managed by the ERP systems which drive the
procurement business process.
Procurement function as explained above is one part of the sourcing function. In an ERP enabled
environment, procurement function consists of detailed indenting process, procurement budget
management, purchase order release, shipment schedule planning with seller coupled with
ensuring compliance with documentation and system updating processes. All these processes are
driven by ERP.
Procurement function deals not only with procurement of raw materials and components, but
also with capital equipments, project procurement, spare parts procurement for after market,
managing rejections, defective returns, warranty replacement process with suppliers too.
Vendor development is a key function in procurement. Sourcing and vendor development are
some of the skill sets required to be developed by Procurement team.
Procurement function works closely with procurement logistics or inbound supply chain. A
procurement professional needs to have operational knowledge of logistical activities in supply
chain network, the various agencies, knowledge of policies, customs rules, Taxation,
commercial, logistical and customs documentation besides knowledge of commercial trade rules
Procurement process and sourcing strategy
Though interlinked closely, both procurement process and sourcing strategy are not one and
Sourcing strategy deals with planning, designing and building a reliable and competitive supplier
base, determining the strategy for procurement, defining pricing strategies and supply chain
requirements. The strategy involves integration of its objectives in line with or confirming to the
2. objectives of stake holders in operations, finance. Marketing and distribution. Lastly sourcing
strategy involves planning to competitive buying sources for its raw materials, components and
services along with alternative variables.
Procurement Process as described above, deals with operational zing business process of
procurement function and ensuring performance.
Shift in Sourcing Strategic approach
Having realized that suppliers play a key important role in the supply chain network of the
business, there has been a change in the way organizations perceive and approach supplier
Several factors have contributed to the shifting of the perceive value of supplier partnerships.
Complex business models at global scales coupled with market demands have necessitated
companies to set up manufacturing or assembly facilities closer to markets as well as in locations
where conversion costs are relatively cheaper. This necessitates that the business be supported by
a solid vendor base which is able to ensure supplies at all locations.
Advancement in technology and R & D capability enhancement is leading to shorter product life
cycles. New versions and product innovation means products become obsolete faster. Besides
new introductions of products depend upon speedy development of new design supplier parts
and the suppliers having to keep pace with changing designs and requirements.
Lean Manufacturing and cost per unit concept is demanding that the managers keep looking to
reduce the procurement cost as well as procurement logistics cost. By developing a relationship
with suppliers in a collaborative mode, buyers are able to get supplier companies to hold
inventories for them at buyer location and postpone taking inventory ownership up to the point
of consumption. Today preferred suppliers follow the buyer into countries where buyer is setting
up facilities and take on value added services including managing warehousing in the spirit of
customer relationship management.
Therefore managements have realized the fact that to be able to develop global business model,
they have to develop supplier partnerships and work with collaboration spirit and invest in
developing the supplier capabilities as well as invest into building the relationship. Supplier
management is no longer transactional.
Limited International Bidding
Limited International Bidding (LIB) is essentially ICB by direct invitation without open
advertisement. It may be an appropriate method of procurement where (i) the contract
values are small, or (ii) there is only a limited number of suppliers, or (iii) other
exceptional reasons may justify departure from full ICB procedures. Under LIB,
Borrowers shall seek bids from a list of potential suppliers broad enough to assure
3. competitive prices, such list to include all suppliers when there are only a limited
number. Domestic preferences are not applicable in the evaluation of bids under LIB. In
all respects other than advertisement and preferences, ICB procedures shall apply.
Shopping (International and National)
3.5 ... Shopping is a procurement method based on comparing price quotations
obtained from several suppliers, usually at least three, to assure competitive prices, and
is an appropriate method for procuring readily available off-the-shelf goods or standard
specification commodities that are small in value. Requests for quotations shall indicate
the description and quantity of the goods, as well as desired delivery time and place.
Quotations may be submitted by telex or facsimile. The evaluation of quotations shall
follow sound public or private sector practices of the purchaser. The terms of the
accepted offer shall be incorporated in a purchase order.
International shopping shall solicit quotations from at least three suppliers in two
different countries. National shopping may be used where the desired goods are
ordinarily available from more than one source in the country of the Borrower at
3.14 ... If the Bank guarantees the repayment of a loan made by another lender, the
goods and works financed by the said loan shall be procured with due attention to
economy and efficiency and in accordance with procedures which meet the
requirements of paragraph 1.5.
Community Participation in Procurement
3.15 ... Where, in the interest of project sustainability, or to achieve certain specific
social objectives of the project, it is desirable in selected project components to (i) call
for the participation of local communities and/or nongovernmental organizations
(NGOs), or (ii) increase the utilization of local know-how and materials, or (iii) employ
labor-intensive and other appropriate technologies, the procurement procedures,
specifications, and contract packaging shall be suitably adapted to reflect these
considerations, provided these are efficient. The procedures proposed shall be outlined
in the Staff Appraisal Report, the President's Report and the Loan Agreement.
(next section: Appendices)
(38). Contracts shall not be divided into smaller units in order to make them less
attractive for ICB procedures; any proposal to divide a contract into smaller packages
shall require the prior approval of the Bank.
4. (39). A government-owned construction unit that is not managerially and financially
autonomous shall be considered a force account unit. "Force account" is otherwise
known as "direct labor," "departmental forces," or "direct work."
(40). The Consultant Guidelines shall apply for the selection of procurement and
inspection agents. The cost or fee of the procurement or inspection agent is eligible for
financing from the Bank loan, if so provided in the Loan Agreement, and provided the
terms and conditions of selection and employment are acceptable to the Bank.
(41). BOO: Build, Own, Operate; BOT: Build, Operate, Transfer; BOOT: Build, Own,
(42). For projects such as toll roads, tunnels, harbors, bridges, power stations, waste
disposal plants, and water distribution systems.